Financial Planning
June 1, 2023

The Complete Guide to Roth Conversions

Stewart Willis

“Roth” is Not a Four-Letter Word

Questions to ask about Roth Conversions

A Roth IRA is a valuable tool when it comes to saving for retirement. Ideally, retirees should have 100% of their money in Roth accounts because they are “after-tax” accounts. That means you pay taxes before you put money in, but you do not have to pay taxes when you withdraw. 

Unfortunately, Roth accounts are often underutilized because of confusion and misunderstanding.

Let’s be clear. Roth conversions are valuable because they allow you to take advantage of Roth IRAs’ unique characteristics, like no required minimum distributions (RMDs) and tax-free withdrawals.

You can transfer money from pre-tax qualified accounts like Traditional IRAs and 401(k)s into a Roth IRA. That process is called a Roth Conversion, and there are a few questions to ask yourself before taking this step.

Is the timing right?

There are two times I recommend a Roth Conversion:

1. End of the Year: It’s wise to consider a Roth Conversion in December, when you can take the events of the entire year into account. 


Events in Washington: Waiting until year-end minimizes legislative risk. You can consider any new laws that are passed that could impact whether the timing is right for you. 

Life events: Any big financial swings, like a medical emergency or a down payment on a new home, could shift you into a different tax bracket. Doing a Roth Conversion early in the year can limit your options.

2. During a Market Decline: When the market is in a pullback that you believe to be temporary, you can buy in at the bottom, convert to a Roth IRA and watch the growth. Imagine making this move in March of 2020 when the Dow Jones dropped 37% only to quickly rebound!

Can I cover the taxes?

Anyone under age 59 1/2 will have to pay a 10% excise penalty on the money they convert to a Roth IRA. We are in the most efficient tax window in history right now, which is scheduled to sunset at the end of 2025. We are advising clients to take advantage of these tax breaks, as long as they have the funds to cover the tax hit.

What are my Roth Conversion options?

When looking at your Roth IRA conversion options, you would undoubtedly see an abundance of advice, articles, and hacks for a successful Roth conversion. Remember, there is a ton of information out there, but a lot of it is unreliable or not relevant to you. Always seek the help of a professional financial advisor.

Roth Conversion Ladders

Early retirement is a dream for many. Who wouldn’t want to make that dream a reality? Roth conversion ladders are one way to go about that. This is a technique where you make several contributions over time to offset the five-year rule.

Roth IRAs are popular because their distributions come with no additional tax obligations. The situation changes when you have a Roth conversion. Roth conversions have a five-year waiting period for each conversion. That means you can’t make withdrawals on that conversion for five years without a financial penalty.

The Roth conversion ladder offsets that by allowing you to make several conversions over the years. You can build a “ladder” of conversions that total your expected financial needs within a certain period. You can create this Roth conversion ladder by making these conversions until you are 59 ½ years old, when you can make withdrawals without penalty.

Backdoor Roth Conversions

While a Roth retirement account has lots to offer, it is out of reach for high-income earners due to contribution limits. One way to get around that is to through a backdoor Roth conversion.

It might sound like a gimmick, but it is a sound way to convert a traditional IRA to a Roth IRA or a 401k to a Roth IRA. A backdoor Roth is actually quite common and nothing to be afraid of. However, there are some Roth conversion strategies you should avoid to make the most of it.

In-Plan Roth Conversions

An in-plan Roth conversion is an option for specific employer-sponsored retirement plans where one can exchange their pre-tax savings for Roth savings within the same plan. It's a way to transition their funds from a traditional 401(k), 403(b), or 457(b) account to a Roth account within the same plan.

Roth IRA types on paper over a roll of cash

Taking advantage of an in-plan Roth conversion presents you with the benefit of tax-free treatment for your withdrawals in the future. Regarding retirement plans, traditional contributions involve paying with pre-tax dollars and paying tax on the withdrawal. If they meet the specific requirements, participants who convert their funds to a Roth account will likely experience tax-free growth and withdrawals during retirement.

You should bear in mind, however, that the transaction itself is subject to taxation. When you transfer money from your pre-tax account to a Roth account, it is considered ordinary income and will be subject to taxation in the year of conversion. You should reach out to a financial advisor to understand the applicable tax situations before making an in-plan Roth conversion.

Some employer-sponsored retirement plans may not provide the option of in-plan Roth conversions or designated Roth accounts. Speak with your plan administrator or a financial expert to see if this is an option for you.

How does this impact my overall tax plan?

You can do a Roth Conversion on your own -- just sign a form, indicate the amount and you’re done. But, I don’t recommend it.

There are potential pitfalls you may not be aware of -- you may be subject to the Net Income Investment Tax or your Medicare costs could be penalized when you cross a certain income threshold. These are things you may not realize unless you are taking your overall tax plan into account, like how this could affect your tax bracket or the pro rata rule.

At Asset Preservation Wealth & Tax, we have a tax office so we can tax plan. We use real tax software that looks at all of the implications of a Roth Conversion so we can see all of the effects. This eliminates the guesswork and gives clients peace of mind. You need specialized help from real financial experts, not Roth conversion calculators and or financial tricks.

The future is unpredictable. A number of factors -- booming inflation, rising oil and gas prices and the war in Ukraine -- could signal instability on the horizon. At Asset Preservation Wealth & Tax, we’ll be watching for opportunities a stock market decline could present. “Drop” -- much like “Roth” -- isn’t necessarily a four-letter word.

A Roth conversion may not be suitable for your situation. The primary goal in converting retirement assets into a Roth IRA is to reduce the future tax liability on the distributions you take in retirement, or on the distributions of your beneficiaries. The information provided is to help you determine whether or not a Roth IRA conversion may be appropriate for your particular circumstances. Please review your retirement savings, tax, and legacy planning strategies with your legal/tax advisor to be sure a Roth IRA conversion fits into your planning strategies.

Stewart Willis is the founder and president of Asset Preservation Wealth & Tax, a financial planning firm in Phoenix, Arizona. Investment advisory services offered through Foundations Investment Advisors, LLC, an SEC registered investment adviser.

The commentary on this blog reflects the personal opinions, viewpoints and analyses of the author, Stewart Willis, providing such comments, and should not be regarded as a description of advisory services provided by Foundations Investment Advisors, LLC (“Foundations”), an SEC registered investment adviser or performance returns of any Foundations client. The views reflected in the commentary are subject to change at any time without notice. Nothing on this website constitutes investment, legal or tax advice, performance data or any recommendation that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person. Personal investment advice can only be rendered after the engagement of Foundations for services, execution of required documentation, including receipt of required disclosures. Any mention of a particular security and related performance data is not a recommendation to buy or sell that security. Foundations manages its clients’ accounts using a variety of investment techniques and strategies, which are not necessarily discussed in the commentary. Any statistical data or information obtained from or prepared by third party sources that Foundations deems reliable but in no way does Foundations guarantee the accuracy or completeness. Investments in securities involve the risk of loss. Any past performance is no guarantee of future results. Advisory services are only offered to clients or prospective clients where Foundations and its advisors are properly licensed or exempted. For more information, please go to and search by our firm name or by our CRD # 175083.

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